At a forum on agricultural financing which opened Monday in Beijing, domestic experts and government officials claimed that a shortage of capital is the biggest problem in China's agricultural development.

Such an assertion was built on the fact that loans for farming projects and township enterprises last year accounted for only 5.4 per cent and 5.2 per cent respectively of the total loans granted by the nation's financial institutions, even though rural areas yielded about half of the country's gross domestic product (GDP).

Some researchers have already pointed out that, instead of funding the country's backward rural economy, the de facto function of rural financial institutions in recent years has been to absorb rural savings for urban use.

However, under current conditions, it is not fair to put all the blame on financial institutions for the undersupply of capital in rural areas.

The widening development gap between rural and urban areas is a predominant factor financial institutions must take into consideration when granting loans.

Between 1996 and 2002, urban residents' income increased by 3,326 yuan (US$400) while farmers' income grew by only 550 yuan (US$62.3) from a much lower base.

It is natural for financial institutions to divert their funds to urban areas where they can make more money with their loans.

Besides, a lack of guarantees also dents financial institutions' enthusiasm to meet the increasing demand for capital in rural areas.

Due to related policies, farmers still cannot get a mortgage on their houses or land.

As a result, only 25 per cent of farmers obtained loans from financial institutions while, as incomplete statistics suggest, more than half of all farmers had to borrow from unregulated lending organizations.

Obviously, a new agricultural financing system is badly needed to boost the rural economy. To build a comparatively well-off society in rural areas will require massive investment supported by financial institutions.

The government should not only urge existing financial institutions to create new channels for farm loans but also work out measures to develop other kinds of institutions to better satisfy farmers' financing needs.

The authorities should try to readjust their policy priorities ranging from infrastructure investment to education, which so far are tilted heavily in favour of urban development.